How JPMorgan’s Added Risk Led to $2 Billion Loss: Timeline

By Rick Green -
Jun 12, 2012

Jamie Dimon, chief executive officer
of JPMorgan Chase & Co. (JPM), is scheduled to testify tomorrow before
Congress about the bank’s $2 billion loss on derivatives trading
at its chief investment office. Here’s a chronology of events
leading to the disclosure and the aftermath.

Some dates are approximate and are subject to revision as
more information becomes available.

2004-------------------------------------------------------

Nov. 13: JPMorgan completes takeover of Bank One Corp., run by
Jamie Dimon. He becomes CEO of JPMorgan the following year.
Global treasury unit, led by Ina Drew, is broken out of
JPMorgan’s investment bank and expands to manage combined firm’s
more diverse balance sheet. Drew begins reporting to Dimon at
year-end.

Jan. 18: Dimon says value-at-risk, or VaR, is “a very bad
number if you think it actually represents risk.” The number
probably will climb, according to Dimon, who says, “We are
going to build our businesses, and therefore, over time, we’ll
be taking more aggregate risk.”

November: Macris’s group begins placing bigger bets, becoming
the biggest buyer in some markets. A CIO trader buys about $1.1
billion of AAA-rated portions of collateralized loan obligations
in November-December.

Dec. 31: Corporate division finishes year with $1.5 billion
profit.

2009----------------------------------------------------------

Date unknown: In the months after the financial crisis, top
executives raise concerns with Dimon that the CIO’s risk
management wasn’t adequate, according to the two executives
familiar with the conversations. William Winters and Steve Black, co-heads of the investment bank, seek more information on
the unit’s changing risk profile. Dimon responds that the
situation is under control. (The bank says executives never
complained about a specific risk in the CIO’s office. For a
complete account, click here.)

April 16: An analyst queries the rise in JPMorgan’s risk gauge
during quarterly earnings call. “I don’t pay that much
attention to VaR,” Dimon says. “A lot of that is just hedge
positions.”

Feb. 13: Hogan names new team, with Irvin Goldman as new chief
risk officer for CIO. The following month, Evan Kalimtgis, co-
head of risk management for the CIO securities book, quits after
learning Goldman is his new boss.

March 31: Average value at risk falls by $2 million to $67
million during the first quarter, according to the new, flawed
formula.

April 5: Bloomberg News is first to report Iksil had roiled
markets with CIO positions so large that they were distorting
prices. The Wall Street Journal follows with a report that hedge
funds are taking positions to bet against JPMorgan. The bank
says the CIO hedges structural risks to bring assets and
liabilities “into better alignment.”

April 8: JPMorgan, responding to speculation that it’s engaging
in proprietary trading, says the CIO “is not focused on short-
term profits.”

April 10: The Wall Street Journal reports that Iksil has stopped
making trades. A spokesman says the bank believes its risk is
now effectively balanced.

April 13: Bloomberg reports that the CIO’s trading positions are
so big that they probably can’t be unwound without losing money
or disrupting markets, and that Dimon supervised a shift in the
CIO’s office in the pasts five years toward making a profit
rather than protecting the bank from risk. In a quarterly
earnings call, Dimon calls the matter “a complete tempest in a
teapot.” JPMorgan posts earnings and distributes VaR data,
which is later withdrawn.

May 10: Dimon announces “egregious” CIO loss of about
$2 billion and says it may increase by $1 billion in the months
ahead. Bank reverts to old VaR formula, which shows average
daily trading risk at $129 million, almost double what had been
reported. The bank’s filing shows VaR at $186 million on last
day of March. Dimon says the trading blunder may blunt efforts
to soften pending U.S. regulations that would restrict trading.

May 14: Ina Drew retires as head of CIO. Matt Zames, her
replacement, shakes up the unit’s leadership. Macris will leave
the firm, Bloomberg reports. Office of the Comptroller of the
Currency says it’s examining losses and risk management.

May 16: The New York Times, citing unidentified people with
knowledge of the matter, reports that the bank’s trading loss
could rise by 50 percent to as much as $3 billion.

May 17: The Wall Street Journal describes how Dimon learned of
the trading losses and reports that JPMorgan’s losses may total
$5 billion.

May 19: Drew began to lose control of the CIO after contracting
Lyme disease in 2010, which resulted in her taking a leave, the
New York Times reports. In her absence, internal divisions and
“clashing egos” contributed to losing trades, the Times says.

May 21: JPMorgan halts stock buybacks. Stock price stands 20
percent below levels that prevailed before CIO loss was
announced. Dimon says there’s no outcome that would be a
“disaster” for the bank. “It’s ugly, but it’s going to be
boxed and eventually it’ll be gone,” the CEO says.

May 30: Zames tells CIO staff he’ll unwind the Special
Investment Group and sell holdings in owner of Ebony magazine,
bankrupt Lightsquared Inc., and Technicolor SA.

May 31: Bloomberg reports CIO valued some of its trades at
prices that differed from those at its investment bank.

June 5: CIO may lose $4.2 billion, according to estimate by
International Strategy & Investment Group Inc. Federal Reserve
is providing oversight to JPMorgan’s “efforts to manage and de-
risk the portfolio,” Fed Governor Daniel Tarullo says.

June 6: Comptroller of the Currency Thomas J. Curry tells Senate
the losses reflect “inadequate risk management” in the CIO and
the agency is checking for similar gaps elsewhere in the bank.